A Pullback Is Imminent - Dry Powder Will Come Handy

 |  Includes: AA, AAPL, DIA, IVV, KO, MCD, PM, QQQ, SPY, VTI
by: Tradevestor

After three months of almost non-stop gain in the stock market, it finally looks like the market is tiring. Dow Jones (Private:DJI), S&P 500 (SPY), and Nasdaq (NASDAQ:QQQ) all closed down for the week ending April 5th 2012. And there have been some bad news coming out of all quarters since the close of market on Thursday.

US Jobs Data: The US non-farm employment increased by just 120K in March, falling short of the expected 200K mark. This sent the US futures down sharply. On top of the existing bad numbers, there is always a doubt lingering that the numbers aren't showing the real bad picture of under-employment.

Chinese Inflation: The Chinese consumer prices increased more than expected, with inflation coming in at 3.6% instead of the 3.3% expected. The Chinese stock market responded promptly, falling close to 1% as of this writing. Any bad news coming out of China will present buying opportunities in strong companies like Freeport- McMoran (FCX) which is heavily dependent on China. Plus, Chinese leaders like Baidu (BIDU) might show some weakness as well.

Gas Prices: While it looks like gas prices have stabilized at slightly below $4 (national average), the upcoming consumer sentiment index report on Friday April 13th will give us a clue about how consumers feel about it. Also, the pain at the pump tends to peak during summer each year. A high gas price will severely hit stocks like Darden Restaurants (DRI).

Earnings: The earnings season is about to begin, with Alcoa (AA) set to report on Monday, April 9th. The marathon run of the market for the first three months was based on stupendous earnings report from companies like Apple (AAPL) and Priceline (PCLN) in the previous quarter, which was helped by holiday sales. It would be very hard to match up to those numbers that the market now expects. There are already predictions that profits will fall uniformly across all sectors.

Conclusion: If and when the market pulls back, it will be a good time to initiate a position or add to existing positions in stocks like Apple, Philip Morris (PM), Coca-Cola (KO), and McDonald's (MCD), most of which have risen sharply since the beginning of the year. It might perhaps be time again to look for safety instead of risky growth.

Disclosure: I am long AAPL, PM, KO, BIDU, DRI.